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Analysis of the long‐term relationship between macro‐economic variables and the Chinese stock market using heteroscedastic cointegration

Analysis of the long‐term relationship between macro‐economic variables and the Chinese stock... Purpose – The purpose of this paper is to investigate the relationship between the Chinese stock market indices and a set of macro‐economic variables, i.e. money supply, industrial production, inflation, exchange rate and interest rates. Design/methodology/approach – The aims of this paper are addressed using heteroscedastic cointegration analysis. Findings – Results show that the cointegrating relationship does exist between stock prices and the macro‐economic variables in the highly speculative Chinese stock market. Detailed analysis shows stock market performance is positively related to that of macro‐economy in the long term. Research limitations/implications – The results imply that in the long run, investors can benefit in terms of better returns and portfolio diversification as the Chinese economy is expected to continue to perform strongly. Originality/value – The main contributions of this paper are two‐fold: first, this is the first paper to examine the long‐term relationship between the stock market indices and macro‐economic variables in China, one of largest economies in the world. Second, heteroscedastic cointegration analysis is used and hence this paper controls for time‐varying volatility. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Finance Emerald Publishing

Analysis of the long‐term relationship between macro‐economic variables and the Chinese stock market using heteroscedastic cointegration

Ming‐Hua Liu; Keshab M. Shrestha
Managerial Finance , Volume 34 (11): 12 – Sep 26, 2008
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12 pages

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Publisher
Emerald Publishing
Copyright
Copyright © 2008 Emerald Group Publishing Limited. All rights reserved.
ISSN
0307-4358
DOI
10.1108/03074350810900479
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to investigate the relationship between the Chinese stock market indices and a set of macro‐economic variables, i.e. money supply, industrial production, inflation, exchange rate and interest rates. Design/methodology/approach – The aims of this paper are addressed using heteroscedastic cointegration analysis. Findings – Results show that the cointegrating relationship does exist between stock prices and the macro‐economic variables in the highly speculative Chinese stock market. Detailed analysis shows stock market performance is positively related to that of macro‐economy in the long term. Research limitations/implications – The results imply that in the long run, investors can benefit in terms of better returns and portfolio diversification as the Chinese economy is expected to continue to perform strongly. Originality/value – The main contributions of this paper are two‐fold: first, this is the first paper to examine the long‐term relationship between the stock market indices and macro‐economic variables in China, one of largest economies in the world. Second, heteroscedastic cointegration analysis is used and hence this paper controls for time‐varying volatility.

Journal

Managerial Finance – Emerald Publishing

Published: Sep 26, 2008

Keywords: Stock markets; China; Macro‐economics; Statistical analysis

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